Competing against institutional subsidisation of advice businesses is a challenge for all non-aligned licensees, but one which forces them to be highly competitive on a range of other factors, according to the managing director of Centrepoint Alliance, John de Zwart.
The key to competing successfully is to “be clear about who we are and what we stand for, and that’s really about quality advice, choice of solutions [and] not trapping our customers into solutions which are, I guess, high cost”, de Zwart says.
“At the end of the day these solutions are being funded by the customer and what they pay for their platforms or investment management,” he says.
“If you want to operate a transparent and clear model, that has flexibility in it for you and your customers, then that’s the proposition that’s out there. Pushing independence of mind is really what we’re about.
Read Professional Planner’s series on leading non-aligned advice groups:
Part 1: The future in focus as non-aligned groups exploit the growing gap with institutions
Part 2: Unity of purpose as non-aligned groups bulk up to compete
AFA: Move away from institutions sees non-aligned licensees driving innovation
”What we’re also doing is trying to innovate and really trying to bring solutions that are really customer-centric, because if you look at the traditional [structures] they’re actually pretty ordinary solutions for customers. They’re not great. Platforms are very technical; funds management is for me an old, traditional model of thinking. It’s not tailored to the way a customer thinks or what they are looking for.”
Vindication
Vindication of the Centrepoint strategy is beginning to emerge. Last week the company marked a turnaround in the performance of its underlying businesses with a return to profitability and a resumption of dividends.
Centrepoint reported a profit after tax of $3.3 million for the 12 months ended June 30, 2014, compared to a loss of $7.8 million in the corresponding period the year before; and a dividend of 2.2 cents a share.
Centrepoint Wealth generated pre-tax profits of $6.5 million, in-line with the year before, despite investment in people and systems running to “several million dollars”, de Zwart says.
“The team has performed well,” he says.
“We’ve got a good team and they’ve delivered.”
De Zwart says turning around the Centrepoint business, especially PIS, was not optional.
“I don’t think we had a choice,” de Zwart says.
“The market wants us to be a quality advice business; the regulators want us to be a quality advice business; and our advisers and staff want us to be a quality advice business.”
Attractive to a wider range
The non-aligned model is becoming attractive to a wider range of advisers, as the effects of the global financial crisis fade, and as the way forward from a regulatory perspective becomes clearer. Business models in both the institutional and non-aligned space are beginning to polarise.
“If I look over the past two years, the industry has had to change,” he says.
“FoFA is driving that change and good businesses have already been moving on that journey. But what FoFA has forced to occur is that you cannot afford to rely on rebates and so on.
“Customers and advisers and networks and practices are demanding more from us, but are prepared to pay less. The fee structures are falling in the sector. The banks have always cross-subsidised their licensees, and they’re doing that more heavily now. What they’re saying to people is if you use our product, there is very low license fee. It’s just another form of conflicted remuneration.
“So what that does is put a lot of pricing pressure onto the independents. The fee structures for some [institutional] licensees out there are getting down into single-digit [thousands], $12,000 per AR. They won’t necessarily be the headline rates. I’ve approach a few of them and seen at least five of them handed through to me, and they’re talking about $10,000 or $12,000 – but you know you have to use [their] product. It’s just another form of conflicted remuneration.”
Advisers asking questions
De Zwart says the questions that more and more advisers are beginning to ask themselves are: How do I move into a quality advice business? And how do I justify the value of advice?
“That’s a lot of what we’re doing,” he says.
“How do you outsource the activities that you’re currently doing – it might be paraplanning, it might be compliance, it might be investment operations, it might be a whole raft of the research and APL activities. If you look at the CoreData numbers, 69 per cent of a practice’s activities are actually non-value-adding from a client perspective. How do you take away that activity via use of systems, automation, and then train the practices about how to implement these changes in an effective way so they can spend more value-adding tie with their customers, and getting back to the things they enjoy?”
De Zwart says that for the advisers approaching PIS and AAP, it’s clear the allure of the institutional shelter is fading.
“Advisers often have worked for an institution in one form or another,” he says.
“They didn’t succeed in that world or they didn’t like the environment of being in an institutional structure, so they’ve left and they’ve set up. When they move into a licensee that is controlled by a bank and the screws start getting tightened on them, they feel like they’re back in that world again.”
Bright future
De Zwart – a former head of AMP Financial Services in the UK and a former chief financial officer for TAL – is confident the non-aligned sector has a bright future, and that Centrepoint’s results will continue to reflect that promise. He is not fazed by the prospect of competing against deep pockets and big networks.
“My story at TAL was we were number 13 in the marketplace, a failing business, big losses and a couple of enforceable undertakings, and for I think five or six years we were told that the banks would always beat us,” de Zwart says.
“In the seventh year we were the market leaders. We were there for three years, and the year after we were the largest in the marketplace. So I love it when people say it can’t be done, that you can’t compete against them.
“We know our business, and our customers, better than they do. That’s our competitive advantage. We speak to our customers every day, and that’s the best way to build a business, to be hands-on. And I think we’ve got an industrial-strength team. We’ve all been there and done it before.”
